9.3.4 Siegel’s Exchange Rate Paradox In (9.3.16), the mean rate of change for the exchange rate Q(t) is R(t) - R f (t) under the domestic risk-neutral measure. From the foreign perspective, the exchange rate is 1/Q(t), and one should expect the mean rate of change of 1/Q(t) to be R f (t) - R(t). This turns out not to be as straight forward as one might expect because of the convexity of the function f(x) = 1/x.

Example: Exchange rate of 0.9 euros to the dollar: 1 euro → dollars If the dollar price of euro falls by 5%: 1 euro → 0.95 × = dollars This is an exchange rate of 1/1.0556= euros to dollars. The change from 0.9 euros to the dollar to euros to the dollar is a 5.26% ( = 1/ ) increase in the euro price of the dollar, not a 5% increase.

9.3.5 Forward Exchange Rates 國外 money market account 用國內 money market account 計價

9.3.6 Garman-Kohlhagen Formula

9.3.7 Exchange Rate Put-Call Duality